TY - JOUR AU - Kose,M. Ayhan AU - Otrok,Christopher AU - Prasad,Eswar S. TI - Global Business Cycles: Convergence or Decoupling? JF - National Bureau of Economic Research Working Paper Series VL - No. 14292 PY - 2008 Y2 - October 2008 UR - http://www.nber.org/papers/w14292 L1 - http://www.nber.org/papers/w14292.pdf N1 - Author contact info: M. Ayhan Kose Research Department International Monetary Fund 700 19th Street, N.W. Washington, DC 20431 E-Mail: akose@imf.org Christopher Otrok Department of Economics University of Missouri Columbia, MO 65211 Tel: 573-882-1587 E-Mail: otrokc@missouri.edu Eswar S. Prasad Dyson School of Applied Economics and Management Cornell University 440 Warren Hall Ithaca, NY 14853 Tel: 607/255-5687 Fax: 607/255-9984 E-Mail: eswar.prasad@cornell.edu AB - This paper analyzes the evolution of the degree of global cyclical interdependence over the period 1960-2005. We categorize the 106 countries in our sample into three groups -- industrial countries, emerging markets, and other developing economies. Using a dynamic factor model, we then decompose macroeconomic fluctuations in key macroeconomic aggregates -- output, consumption, and investment -- into different factors. These are: (i) a global factor, which picks up fluctuations that are common across all variables and countries; (ii) three group-specific factors, which capture fluctuations that are common to all variables and all countries within each group of countries; (iii) country factors, which are common across all aggregates in a given country; and (iv) idiosyncratic factors specific to each time series. Our main result is that, during the period of globalization (1985-2005), there has been some convergence of business cycle fluctuations among the group of industrial economies and among the group of emerging market economies. Surprisingly, there has been a concomitant decline in the relative importance of the global factor. In other words, there is evidence of business cycle convergence within each of these two groups of countries but divergence (or decoupling) between them. ER -